Join us on Wednesday, June 10, 2020, for a CLE presentation on “COVID-19: Perspectives for the “Next New Normal” for Renewable and Utility Companies.”

Companies are seeing unprecedented legal and business impacts due to the COVID-19 pandemic. These impacts are bringing about changes in strategy and how many companies approach their day-to-day business operations to adapt to this new business environment. This one-hour session will involve a presentation by the following K&L Gates attorneys sharing their perspectives on what to consider during the “next new normal.”

On May 20, 2020, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) announced that it will hold a technical conference to discuss the impact on the energy industry of emergency conditions arising from the COVID-19 pandemic. The conference will take place July 8-9, 2020 from 9 a.m. to 5 p.m.

The Commission plans to use the conference to assess the ongoing impacts that the COVID-19 pandemic is having on parts of the U.S. energy industry. While the Commission already enacted short-term regulatory relief actions for regulated entities, the conference will explore long-term options for safeguarding the nation’s energy markets, electric transmission system, natural gas and oil transportation, and future operation of energy infrastructure.

In addition, FERC intends for the event to serve as a public forum for the Commission and stakeholders to address the recovery of the industry from the COVID-19 pandemic. The event will afford the public an opportunity to receive high-level information about how COVID-19 may change the energy industry moving forward.

Among the topics the Commission plans to cover in panels and discussions are: (1) ongoing and future operational and planning challenges due to COVID-19; (2) operations, planning, and infrastructure development impacts anticipated due to the effect of COVID-19 on electric demand; (3) operations, planning, and infrastructure development impacts anticipated due to the effect of COVID-19 on natural gas and oil demand; and (4) anticipated issues related to access to capital, such as credit, liquidity, and return on equity.

This afternoon, the Office of Legislative Affairs at the Department of Treasury, issued a letter to Charles Grassley, the Chairman of the Senate Committee on Finance, indicating that Treasury intends to issue administrative relief to the solar and wind industries regarding certain investment tax credit (“ITC”) and production tax credit (“PTC”) deadlines. Although the letter does not provide any details as to the nature of this relief, Chairman Grassley’s April 23, 2020 letter to Treasury requested that the four-year safe harbor for the continuous construction and continuous efforts test for the PTC and ITC be extended to a five-year safe harbor period.

Chairman Grassley did not request administrative relief concerning the impact of COVID-19 related measures taken by manufacturers and shipping companies on a customer’s “reasonable expectation” that materials purchased in 2019 would be delivered within 3.5 months after payment. This latter provision is important for purposes for establishing beginning of construction of solar projects in 2019.

On May 4, 2020, Commerce Secretary Wilbur Ross announced an investigation into whether imports of certain power distribution transformers and parts threaten to impair U.S. national security. A few days earlier, on May 1, 2020, President Trump issued an Executive Order declaring a national emergency over potential foreign threats to the security of the U.S. bulk power system. Both actions, which are in response to perceived foreign threats to the U.S. electrical power grid, will likely result in the imposition of significant restrictions on the importation of covered equipment. As discussed below, each action will proceed along separate paths.

Commerce Section 232 National Security Investigation

On May 4, 2020, Commerce Secretary Wilbur Ross announced that the agency intends to initiate an investigation under Section 232 of the Trade Expansion Act of 1962[1] into whether imports of certain power distribution transformers and parts threaten to impair U.S. national security. Secretary Ross indicated the investigation will focus on “laminations for stacked cores for incorporation into transformers, stacked and wound cores for incorporation into transformers, electrical transformers, and transformer regulators.”

Once initiated, the investigation must be completed within 270 days. Commerce will then provide its report and recommendations to the President, at which point the President has 90 days to determine the nature and duration of action to “adjust” imports.

The law gives the President complete discretion (“in the judgment of the President”) to choose the nature or duration of any action to adjust imports “so that such imports will not threaten to impair the national security.” Previous Section 232 actions included imposition of import tariffs, fees, and quotas, as well as complete embargo of subject imports. For example, in March 2018 President Trump imposed tariffs on steel and aluminum imports as a result of similar Section 232 investigations launched in April 2017. The President also has the option of negotiating agreements with trading partners to limit subject imports, the option embraced by President Trump in the context of the Section 232 investigation launched in May 2018 with respect to imports of automobiles.

Executive Order to Secure U.S. Bulk-Power System from Foreign Adversary Threats

On May 1, 2020, President Trump issued an Executive Order[2] declaring a national emergency over potential foreign threats to the U.S. bulk-power system from foreign adversaries that may seek to commit malicious acts against the United States and its population including malicious cyber activities. The Order empowers the U.S. government to block imports of certain equipment that could endanger the security of U.S. power plants.

As a practical matter, the new Order does not ban anything, but rather instructs the Department of Energy to issue regulations within 150 days. These regulations are expected to set forth procedures whereby specifically identified bulk power equipment may be prohibited from importation, acquisition, transfer, or installation. (This process will likely be similar to that laid out in Commerce Department regulations implementing a 2019 Executive Order declaring a national emergency with respect to the information and communications technology and services supply chain concerns.[3] Please see our prior alert for an explanation of those Commerce regulations.[4])

The May 1st Order provides authorization to target any acquisition, importation, transfer, or installation (transaction) of to-be-identified bulk-power system electric equipment designed, developed, manufactured, or supplied by persons owned/controlled by/subject to the jurisdiction or direction of a foreign adversary, where the transaction—

poses an undue risk of sabotage to or subversion of the design, integrity, manufacturing, production, distribution, installation, operation, or maintenance of the bulk-power system in the United States;

poses an undue risk of catastrophic effects on the security or resiliency of United States critical infrastructure or the economy of the United States; or

otherwise poses an unacceptable risk to the national security of the United States or the security and safety of United States persons.

The Order provides a somewhat generic definition of the term “foreign adversary” as “any foreign government or foreign non-government person engaged in a long-term pattern or serious instances of conduct significantly adverse to the national security of the United States or its allies or the security and safety of United States persons.” The Commerce regulations (referenced above) include this same definition which gives the agency discretion to identify foreign adversaries as needed.

Implications

Trump Administration actions in response to perceived foreign threats to the U.S. electrical power grid could include sweeping import restrictions with a significant impact on both the renewable and conventional power industries. Until the Department of Energy issues regulations to implement the Executive Order, the order will not directly impact any power plant project or transaction.

On April 15, 2020, the Montana federal district court issued an Order in Northern Plains Resource Council v. U.S. Army Corps of Engineers, No. 4:19-cv-00044-BMM (D. Mont.) (NPRC v. Corps) that may have far reaching implications for energy development projects across the United States.

In a case involving the Keystone XL Pipeline Project, the Montana court vacated the U.S. Army Corps of Engineers’ (Corps) Nationwide Permit (NWP) 12. The Court concluded that because the Corps failed to consult under the Endangered Species Act (ESA) Section 7 when it reissued NWP 12 in 2017, the permit is not valid and the Corps may not authorize work under the terms and conditions of NWP 12.

Background, Key findings, and Order

The Corp’s 2017 Reissuance of NWP 12. When the Corps reissued NWP 12 (along with all other NWPs) in 2017, it determined that ESA consultation with the U.S. Fish and Wildlife Service and National Marine Fisheries Service (the “Services”) was not required because the reissuance of NWPs has “no effect” on ESA-listed species or critical habitat.

Court’s Key Findings. The court held that the Corps’ “no effect determination and resulting decision to forego programmatic consultation proves arbitrary and capricious in violation of the Corps’ obligations under the ESA.” The court concluded that the Corps cannot circumvent ESA Section 7(a)(2) consultation requirements by relying on project-level review (e.g., by non-federal entities) under NWP General Condition 18’s preconstruction notification (PCN) requirement. The court reasoned that (1) General Condition 18’s PCN requirement fails to ensure that the Corps fulfills its obligations under ESA Section 7(a)(2) because it delegates the Corps’ initial effect determination to non-federal permittees.

Court’s Order. Based on the court’s findings, the Order (1) vacated NWP 12; (2) remanded NWP 12 to the Corps to initiate consultation now; and (3) enjoined the Corps from authorizing work under NWP 12 until consultation is completed.

Potential Implications if a Motion for Reconsideration or Stay is not Granted

Immediate Impact on Projects with NWP 12 Authorization. The Order creates immediate uncertainty for project proponents needing NWP 12 authorization. If the Order is not stayed or appealed, the Corps could reopen programmatic consultation with the Services, which could take several months or longer to complete and, once completed, may be subject to further litigation. In addition, the Order could be leveraged by other plaintiffs targeting the Corps’ other NWPs that rely on General Condition 18. Given the uncertainty, developers will need to consider their current permitting options, which may include other NWPs, individual 404 permits (which trigger NEPA, NHPA, and ESA), or project redesign to avoid impacts to regulated waters.

Current Status

On April 27, 2020, the Corps filed motions for expedited briefing and consideration for a partial stay of the Order pending an appeal. The Corps’ motion asks the Court to stay “those portions of its April 15, 2020, Order that vacate NWP 12 and broadly enjoin the Corps from authorizing any dredge or fill activities under the permit”; or at “the very least, the Court should stay its vacatur and injunction as they relate to anything other than the Keystone XL pipeline.”

**UPDATE**: On April 28, 2020, U.S. District Court Judge Brian Morris denied the Corps’ motion for a temporary administrative stay of the court’s vacatur, injunction, and remand orders. Judge Morris ordered Plaintiffs and the Corps to complete briefing on an expedited basis by May 8, however, on the Corps’ broader request for a stay pending appeal, which should give permit-seekers and holders additional insight into the immediate future of NWP 12.

**UPDATE May 7, 2020**: On May 7, 2020, Plaintiffs filed their opposition to the Corps’ Motion for Partial Stay Pending Appeal. Significantly, Plaintiffs agree with the Corps to ask the Court to revise the remedy that the was ordered on April 15, 2020. Specifically, Plaintiffs propose that the Court modify these remedies as follows.

(1) narrowing the vacatur of NWP 12 to a partial vacatur that applies to the construction of new oil and gas pipelines, thereby keeping NWP 12 in place during remand insofar as it authorizes non-pipeline construction activities as well as routine maintenance, inspection, and repair activities on existing NWP 12 projects; and

(2) narrowing the injunction to enjoin the Corps from authorizing any dredge or fill activities for Keystone XL under NWP 12. This relief would afford appropriate protection for endangered and threatened species and their critical habitats while minimizing any potential disruption claimed by Defendants.

**UPDATE May 12, 2020**: On May 11, 2020, the Montana District Court issued its ruling on the Corps’ motion to stay the court’s original Order issued on April 15, 2020.

The Court denied the motion to stay Order pending an appeal to the 9th Circuit. However, the Court adopted Plaintiffs’ proposal that the Court revise the scope of remedy in the original Order to apply only to new and gas construction projects. The Court narrowed the scope vacatur and injunction as follows:

NWP 12 is vacated as it relates to the construction of new oil and gas pipelines pending completion of the consultation process and compliance with all environmental statutes and regulations. NWP 12 remains in place during remand insofar as it authorizes non-pipeline construction activities and routine maintenance, inspection, and repair activities on existing NWP 12 projects.

The Corps is enjoined from authoring any dredge or fill activities for the construction of new oil and gas pipelines under NWP 12 pending completion of the consultation process and compliance with all environmental statutes and regulations. The Corps remains able to authorize dredge or fill activities for nonpipeline construction activities and routine maintenance, inspection, and repair activities on existing NWP 12 projects.

Sellers under virtual power purchase agreements often agree to assume the duty to report the swap transactions contemplated by those agreements. Parties acting as reporting parties for Dodd-Frank purposes will be interested in the Roadmap to Achieve High Quality Swap Data (“Roadmap”) rulemakings currently under way at the Commodity Futures Trading Commission (“CFTC”).

As part of the Roadmap proceedings, the CFTC recently published proposed amendments to its regulations governing swap data reporting requirements and swap data repositories (“SDR”). 84 Fed. Reg. 21044 (May 13, 2019). Among other changes, the proposals would require an SDR to distribute to each reporting counterparty on a regular basis an “open swaps report” detailing the swap data maintained by the SDR for all open swaps, organized by the unique identifier created for each swap. SDRs would be required to distribute the open swaps reports to non-swap dealer (“non-SD”) reporting counterparties, which would encompass most energy firms acting as a reporting counterparty, on a monthly basis, no later than the end of the day Eastern Time on the day of the month that the SDR chooses to regularly distribute the reports. The reporting counterparty would then be required to compare its books and records against the report to determine if the swap data that the SDR maintains is complete and accurate. A non-SD reporting counterparty would be required to submit either a verification of data accuracy or a notice of discrepancy within 96 hours of the SDR providing the open swaps report. This would be a change from the current regulatory framework that is based on the concept of negative affirmation, whereby reported swap data is presumed accurate and confirmed if a counterparty does not inform the SDR of errors or omissions or otherwise make modifications to a trade record within a specified time period under SDR rules.

If a notice of discrepancy were filed, the error or omission must be corrected within three business days of that notice filing. The current regulations require that an error or omission be corrected “as soon as technologically practicable” following discovery, but the proposals would reinforce that requirement with the three-business-day time frame. If that three-business-day time frame cannot be met, the reporting party would be required immediately to inform the Director of the CFTC’s Division of Market Oversight, or the Director’s designee, in writing, of such errors or omissions and provide an initial assessment of the scope of the errors or omissions and an initial remediation plan for their correction.

The requirements for correcting errors or omissions would apply to both swap data required by Part 45 of the CFTC’s regulations (creation and continuation data) and to swap transaction and pricing data required by Part 43 of the CFTC’s regulations. However, the open swaps report provision would only apply to the former, although the preamble of the notice announcing the proposed amendments specifically requests comment on whether that report should also cover swap transaction and pricing data.

The CFTC also states in the preamble that it expects that a reporting counterparty that repeatedly discovers errors or omissions, especially if they follow a pattern, would evaluate its reporting systems to discover and correct any issues. This would include working with the relevant SDR to address any reporting issues. The CFTC further notes that it may consider a reporting counterparty that fails to perform such an evaluation and improvement in light of repeated errors not to be in compliance with the regulations.

The proposed amendments, which are available here, are part of the CFTC’s Roadmap, and constitute the first of three anticipated Roadmap rulemakings. The comment period on these proposed amendments closes July 29, 2019. When the CFTC proposes the next two rulemakings, it anticipates re-opening the comment period for this first proposal to provide market participants with an opportunity to comment collectively on the three rulemakings together. The CFTC also anticipates that key provisions of each rulemaking would have the same compliance date, regardless of when each rulemaking is adopted in final form. The CFTC intends to provide a sufficient implementation period for these various rulemakings to give SDRs and market participants enough time to implement and test the changes that would be required.

Yesterday, the Treasury Department rolled out proposed Opportunity Zone (“OZ”) regulations (the “Proposed Regulations”) and President Trump noted the progress made by his Opportunity and Revitalization Council to eliminate barriers to OZ investments. The administration is clearly all in on maximizing the number of businesses and projects that will qualify for OZ benefits.

On December 20, 2018, the Federal Energy Regulatory Commission (FERC) announced a Notice of Proposed Rule Making (NOPR) designed to simplify the horizontal market power analysis necessary for electric power sellers to secure market-based rate authority in some wholesale power markets. Specifically, the NOPR eliminates the need to perform two indicative screens (the pivotal supplier screen and the wholesale market share screen) in capacity markets and wholesale power markets already subject to Commission-approved monitoring and mitigation rules. Notably, the Southwest Power Pool and California Independent System Operator wholesale markets are not subject to these monitoring and mitigation rules, so parties seeking market-based rate authority to sell capacity in those markets must still perform the two indicative screens. This simplification will relieve the added procedural burden of administering the indicative screens for parties seeking market-based rate authority in the other FERC-regulated markets.

The NOPR
also proposes to remove the presumption that market monitoring or mitigation
measures will adequately address indicative screen failures in organized
wholesale power markets where the grid operator does not administer a capacity
market. Rather, the NOPR proposes that in the event of an indicative screen
failure in those markets, applicants submit a delivered-price test or other
evidence demonstrating a lack of horizontal market power or that the applicant
propose other mitigation for capacity sales in those markets.

K&L Gates attorneys will continue to monitor these
developments and assist our clients navigating compliance with FERC rules and regulations.

The tumultuous 2018 midterm election, characterized by many as the most consequential in a generation, ended as predicted: the Democrats took control of the House while the Republicans increased their hold in the Senate.

Indeed, it was a tale of two Houses. As of 10:00 a.m. ET on November 7, the Democrats have picked up 28 seats in the House of Representatives, with the prospects of gaining about seven more as the remaining close races are decided, mostly in the west. In the Senate, Democratic Senators in Missouri, Indiana, and North Dakota were defeated while a Republican lost in Nevada, resulting in a net gain of two Senate seats thus far for Republicans with three races too close to call.

To help you assess yesterday’s election, K&L Gates has prepared a comprehensive guide that summarizes the results and their impact on the 116th Congress, which will convene in January. The Election Guide lists all new members elected to Congress, updates the congressional delegations for each state, and provides a starting point for analyzing the coming changes to the House and Senate committees.

Please click here to download the most up-to-date version of the 148-page Election Guide, which will be updated on an ongoing basis as more of the close races are called and committees are finalized.

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